NEW DELHI : Near-term uncertainties around supplies from Russia are keeping markets cautious despite GAIL India Ltd reporting strong numbers for the quarter that ended in June. The stock continued its downwards journey and closed 5.17% lower Friday.
The company’s reported net profits of ₹2,915 crore were up 90.5% year-on-year (y-o-y) and 9% sequentially. This was better than Bloomberg consensus earnings estimates of ₹2,416 crore. It recorded a 116% increase in revenue from operations to ₹37,572 crores in Q1FY23. On a sequential basis the revenue grew 39%.
This was driven by the strong performance of the gas trading business that saw revenue grow more than two folds on a y-o-y basis and up more than 50% sequentially. The segment’s profitability remains strong and analysts attribute this to very high differentials between Asian liquified natural gas (LNG) prices and US Henry Hub benchmarks. Even the gas transmission business was supportive, though volume growth was softer and analysts attributed it to higher gas prices.
Nevertheless, these segments took care of the weakness in the petrochemicals segment, which saw a significant decline in volumes even as realisations remained supportive. The company attributed the positive results to increased gas marketing and transmission volumes, better marketing spread and higher product prices.
The company’s earnings before interest, tax, depreciation, and amortisation (Ebitda) at ₹4,365 crore improved 81% y-o-y and 17.5% sequentially.
Despite the strong beat, the concerns of the street are related to lower gas supplies from Russia. Analysts said that gas trading volumes remained strong in Q1, up 5% y-o-y, but this segment will remain soft in 2Q FY23, led by a loss of volumes because supply issues from Gazprom.
GAIL has a portfolio of 14 million tonnes per annum of long-term LNG contracts from various sources including Gazprom, it said. There have been supply disruptions under the contract since late May 2022 and Gazprom has not delivered eight shipments to GAIL. In June 2022, GAIL got only one shipment of LNG.
If Gazprom triggers the force majeure clause, it will lead to higher gas prices, according to analysts at Motilal Oswal Financial Services Ltd. This may result in a slightly lower offtake as some consumers may not be able to afford higher gas prices.
The inability of Gazprom to supply contracted LNG to GAIL since June could impact marketing volume by 5-6 million metric standard cubic metres per day (mmscmd) and transmission volume by 6-7 mmscmd, as well as impact petrochemical plant utilization during Q2FY23, according to Elara Securities India Pvt Ltd.
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